Today, Federal Reserve chairman Ben Bernanke told the House Financial Services Committee that the rapidly falling unemployment rate reported this past year by the Bureau of Labor Statistics does not fit with the other data he has been seeing. He said:

The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that time frame at or below its longer-term trend.

Bernanke is showing a lot of common sense here. Although he has not looked carefully at the BLS data, he realizes that something is fishy. Former Reagan budget director David Stockman calls the manipulations of the data by the Bureau of Labor Statistics (BLS) and the Bureau of Economic Analysis (BEA) "The Economists' Truman Show."

For example, the unemployment rate fell in January partly because the Bureau of Labor Statistics (BLS) reclassified 1.177 million people who might otherwise have been considered as unemployed as having dropped out of the labor force. (To find this December-to-January adjustment in the BLS press release, check out Table C.)

Bernanke probably looked carefully at the GDP numbers just released this morning. The headlines trumpeted the increase in real GDP in the fourth quarter at an annual rate of 3.0%, but a closer examination reveals that real GDP would only have grown by a minute annual rate of 1.3% if not for inventories growing at a 1.7% of GDP clip. The following table shows the contributors to GDP growth during each quarter of the past year....

If you haven't been reading Anthony Watt's Watt's Up with That Blog, linked to on our sidebar, you have been missing some gems:

FakeGate. The latest is the case of the anthropogenic global warming believer (Breaking: Gleick Confesses), funded by the EPA, who accused the Heartland Institute of duplicity, but it turned out that he was stealing documents and publishing a forged memo.

In a February 23 interview on GBTV, Senator Santorum's discussion of the Federal Reserve showed off his economic common sense. Here is the relevant segment:

Santorum was being interviewed by Glenn Beck, who has taken the foolish position that the Federal Reserve should be eliminated and that the United States return to a gold standard. Santorum did not agree, but he had sensible ideas of how the Federal Reserve should be reformed. His discussion showed his understanding of three key economic principles:...

Follow the following link to hear a February 18 interview with Ray Richman on the Ron Morris' American Entrepreneur radio show.

The discussion of rules vs. authorities was especially interesting. The monetarists at the University of Chicago, where Ray got his doctorate, believed that the government should be bound by rules. Instead, we have Federal agencies making up the rules as they go along. These agencies are using their authority to discourage investments in the American economy. Follow the following link to download the mp3 of this segment of the show:

We would like to call your attention to an editorial in The Economistof Feb. 18, 2012 entitled “Over-regulated America” and sub-titled, “The home of laissez-faire is being suffocated by excessive and badly written regulations.” It cites inter aliathe Dodd-Frank law of 2010 as “far too complex and becoming more so. At 848 pages…”. Yes, you read that right! “Worse, every other page demands that regulators fill in further detail. Some of these clarifications are hundreds of pages long. Just one bit, the ‘Volcker rule’, which aims to curb risky proprietary trading by banks, includes 383 questions that break down into 1,420 subquestions.” And “.. of the 400 rules in mandates, only 93 have been finalized. So financial firms in America must prepare to comply with a law that is partly unintelligible and partly unknowable.”

As for Obamacare, “Every hour spent treating a patient in America creates at least 30 minutes of paper-work , and often a whole hour. Next year the number of federally mandated categories of illness and injury for which hospitals may claim reimbursement will rise from 18,000 to 140,000.” And a study for the Small Business Administration “found that regulations in general add $10.585 in costs per employee.” The Economist is to be congratulated for calling attention to the problem of over-regulation that is so harmful to the American economy.

Unfortunately, The Economist is not against government regulations but only to their complexity....

In the February 16 Wall Street Journal, Mitt Romney had a commentary about China (How I'll respond to China's Rising Power). He criticized President Obama's failures in China negotiations, attributing them to to Obama's other goals:

President Obama came into office as a near supplicant to Beijing, almost begging it to continue buying American debt so as to finance his profligate spending here at home. His administration demurred from raising issues of human rights for fear it would compromise agreement on the global economic crisis or even "the global climate-change crisis." Such weakness has only encouraged Chinese assertiveness and made our allies question our staying power in East Asia.

Romney plans a tough policy on China's trade cheating:

In the economic arena, we must directly counter abusive Chinese practices in the areas of trade, intellectual property, and currency valuation. While I am prepared to work with Chinese leaders to ensure that our countries both benefit from trade, I will not continue an economic relationship that rewards China's cheating and penalizes American companies and workers.

Unless China changes its ways, on day one of my presidency I will designate it a currency manipulator and take appropriate counteraction. A trade war with China is the last thing I want, but I cannot tolerate our current trade surrender.

Meanwhile China's president-in-waiting Xi Jinping's five-day visit to the United States last week resulted in an agreement that China would cheat a bit less, as it continues to pursue its strategy of keeping out legitimate American movies, music and software while permitting their piracy. Reuter's reports:...

An obscure Chinese company’s battle with Apple Inc. over who has rights to the iPad name took another unlikely turn after authorities in northeastern China seized dozens of the Apple tablets for trademark infringement, an attorney for the company said.

The seizures in Shijiazhuang, capital of Hebei province, were in response to a complaint filed by Proview Technology, a company based in the southern Chinese city of Shenzhen which has stymied Apple’s bid to secure the trademark in China for its hot-selling device.

In December, a court in Shenzhen unexpectedly rejected a lawsuit by Apple claiming it was the rightful holder of the iPad name.

In general, the courts in China do the bidding of the Communist Party of China. This particular decision went against Apple, even though Apple had bought the rights to the iPad name from Proview back in 2006, as the Los Angeles Times article points out:...

[I recently had a chat with one of my students in which I explained how China's trade strategy works. I thought some of you who are confused about China's strategy might find it interesting also.]

Student 6:01 pmCan you describe how building up foreign reserves help the economy?

Howard Richman 6:03 pmIt lets those producing in the mercantilist country make huge profits by selling at a low currency rate. That gets businesses to build factories in the mercantilist country. The mercantilist country gets manufacturing investment, and its trading partners don't. Fixed investment causes long-term growth, and there's more to it than just that. The mercantilist country's workers learn by doing. So become better and better workers.

Howard Richman 6:05 pmAnd so the mercantilist country takes over its trading partners' comparative advantages. But China's main goal is power. It wants to increase its power and bring down ours, and that's what it's doing, and we're letting them. Power was always one of the main goals of the mercantilists.

Student 6:06 pmWell it seems like a risky investment that they're putting so much into our dollar when it's on the verge of crashing. If our dollar becomes completely worthless does it benefit them?...

On January 25, Speaker Gingrich proposed that the U.S. government build and maintain a colony on the moon. He was promising the moon in order to get votes in Florida from those who work for NASA and its contractors.

The next day, the Florida Republican debate occurred. It was too soon for the candidates to focus-group their positions; as a result, their arguments in the debate revealed how they actually think. (Click here to watch this portion of the debate.)

Gingrich: The Big Idea Man

The most creative part of Speaker Gingrich's proposal was his method for involving entrepreneurs in the venture. He is aware that NASA has been deteriorating over time to the point where it cannot even get satellites up into space. Gingrich would largely replace NASA with contests. In the debate, he said:...

According to data released by the Commerce Department this morning, the U.S. merchandise trade deficit with China set a new record high in 2011 at $295.5, up from the last record high, $273.1 billion in 2010. Previous to that, the record was $268.0 billion in 2008. The U.S. trade deficiit with China has deteriorated for 23 straight months (when compared to the same month one year earlier), as shown in the graph below:

Trade deficits are a drag upon economic growth and produce a continuing loss of good paying U.S. jobs. When trade is in balance, jobs lost to imports are replaced by more productive jobs producing exports. But when the U.S. lets its trading partners manipulate currency values and place barriers upon U.S. products, the U.S. loses jobs while gaining little but debt.

In his State of the Union speech on January 24, President Obama said that he is doing much to improve our trade relationship with China. He suggested that someday he might even be able to reduce Chinese pirating of U.S. movies, music and software. Specifically:...

Writing in the Wall Street Examiner on February 5, Bruce Krasting and David Stockman (President Reagan's budget director) discussed the sudden fall in the labor force participation rate reported by the Bureau of Labor Statistics (BLS) in January. A full 1.177 million people who might otherwise have been considered as unemployed were reclassified as having dropped out of the labor force in a single month.

The BLS is not trying to hide their sudden change in the labor force participation rate, they discuss it in a table at the bottom of their press release. But with the exception of the business press, the mainstream press publishes the headline data that the BEA puts at the top of the press release and they ignore the rest.

Stockman calls the statistics coming out of the BLS and BEA (Bureau of Economic Analysis), "the economists' Truman Show." He writes:

I don’t particularly believe in tin foil hats, but all of these mainstream economists treat the BLS and BEA data like it’s holy writ—when it’s evident that the reports are so massaged, estimated, deemed, revised, re-bench marked and seasonally adjusted that any month-to-month change has a decent chance of being noise. What deep secret might they be hiding?

So on the labor force participation rate they say, “No it didn’t go down in January because the 2012 numbers are re-bench marked for the 2010 census,” but for some reason the BLS didn’t bother to update the 2011 civilian population numbers, including December. Thus, the BLS published apples-to-oranges numbers on this particular variable and the footnote says the December participation rate would have been the same as January, if they had revised it!...

But the mainstream narrative never gets to the trend. In this case, the plain fact is that we are warehousing a larger and larger population of adults who are one way or another living off transfer payments, relatives, sub-prime credit, and the black market. My suspicion is that this negative trend and many others like it get buried by the monthly change chatter from mainstream economists and on bubble vision, and that these monthly deltas are so heavily manipulated as to be almost a made-up reality. Call it the economists’ Truman Show....

The discussion of Gingrich’s moon colony proposal at the January 26 Republican presidential candidate debate tells us a lot about the Republican Final Four. It reveals how they would approach their decisions as President and lets us predict the economies that they would produce. (Click here to watch this portion of the debate.)

Speaker Gingrich: The Big Idea Man

Speaker Gingrich initiated the discussion of a possible moon colony during a speech in Florida designed to appeal to NASA workers that was televised by CSPAN the day before the debate. He urged that the United States set a new national goal to put a permanent colony on the moon by the end of the decade and make that colony the 51st state. But the most creative part of his idea was his method for involving entrepreneurs in the venture.

He is aware that NASA, as is true of almost all government-run institutions, has deteriorated over time. These days, it can’t even get satellites up into space. Gingrich would largely replace NASA with contests. He said:...

President Obama received some good news when the January jobs and unemployment numbers came in better than economists expected. But the numbers were not nearly as good as they seemed. They were largely the result of an incorrect seasonal adjustment. Action Forex, a weekly Internet publication of Wells Fargo, makes this point:

The employment report for January showed that 243,000 jobs were added with the unemployment rate declining slightly to 8.3 percent. The details of the report however, suggest that unseasonably warm weather may be playing a role in the stronger job gains....

Unseasonably warm weather may be helping boost the headline employment numbers. Typically, this time of year, around 430K workers report that they are unable to work, a spike that coincides with winter weather. The number of workers reporting that they are unable to work in January fell by more than 200K below this average. We remain somewhat skeptical that job growth in excess of 200K per month will continue over the near term.

Still, Wells Fargo sees these jobs numbers as a positive sign. They write:...

In his January 24 State of the Union speech, President Obama argued that American manufacturing is already coming back under his presidency. But his actual record on manufacturing jobs is dismal.

Normally, after a recession, laid-off workers get hired back. But America had 13.8 million manufacturing jobs when the Great Recession began at the end of 2007. Today, the nation has just 11.8 million, as shown in the graph below:

Initial unemployment compensation claims exceeded 400,000 during the week ending Jan 28, 2012. What you did not see, hear, or read in the media Thursday or Friday Feb. 2-3, was the unadjusted number, i.e., the actual number of initial claims reported by the BLS beginning in the 4th paragraph below. Instead, the media, including Rick Santelli of CNBC, the Friday WSJ, Bloomerg, et al. reported that the number of claims filed was 379,000 when in fact it was 415,094. ...

[An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

Journal of Economic Literature:

[Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

Atlantic Economic Journal:

In Trading Away Our Future Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]